Before Congress Again: Subchapter V’s $7,500,000 Debt Limit (S.A. 3382 to S.2296)

By:  Donald L. Swanson

On July 31, 2025, Senators Grassley (R) and Durbin (D) introduce in the U.S. Senate an amendment (S.A.3382) to the “National Defense Authorization Act for Fiscal Year 2026” (S.2296).

Said amendment proposes to reinstate the debt limit for Subchapter V eligibility at $7,500,000, from its current inflation-adjusted $3,424,000.

Subchapter V Chronology

Here is a Subchapter V chronology:

• August 23, 2019—Congress enacts Subchapter V (then known as the “Small Business Reorganization Act,” aka “SBRA”);
• February 19, 2020—Subchapter V goes into effect with an eligibility debt limit of $2,750,000;
• March 27, 2020—Congress increases Subchapter V’s eligibility debt limit to $7,500,000;
• June 21, 2024—Congress allows the $7,500,000 debt limit to expire, reverting the debt limit back to an inflation-adjusted $3,024,725—which amount then increases again (on April 1, 2025) to an inflation-adjusted $3,424,000; and
• Since June 1, 2024—efforts in Congress to reinstate the $7,500,000 debt limit have failed.

Broad Support

Notwithstanding such failures, broad support exists for reinstatement of the $7,500,000 debt limit, within the bankruptcy community and among politicians.

–Bankruptcy Community

The community of bankruptcy professionals broadly supports the proposed reinstatement, because everyone realizes:

• small businesses are a crucial part of our market- and credit-based economy;
• the risk of failure is a constant companion of every business venture—especially for small businesses; and
• a bankruptcy tool for managing small business reorganizations and liquidations is better for everyone than the chaos of creditors racing to dismember the debtor and its assets. 

And there is a sense of incredulity, among many within the bankruptcy community, that the reinstatement hasn’t already happened. 

–Politicians

Even politicians . . . of all types and stripes . . . express support for the reinstatement. 

That’s true despite these political realities:

• many significant interests are reflex-opposed to anything bankruptcy (i.e., “I’m against it! . . . But what does it say?”); and
• bankruptcy legislation has no natural constituency—there is no such thing, I’m fond of saying, as a “National Association of Bankruptcy Debtors,” nor is there any such aspirational thing as “Future Debtors of America.”  

Here’s why political support exists: (i) politicians understand that every small business faces a risk of failure and is a potential debtor, (ii) every political representative has small business constituents—lots of them, and (iii) when a financial crisis arises, small business owners and others affected wonder why their political representatives failed to help.

Here are two illustrations of how such political realities work:

1. Congress enacted Chapter 12 for farmers in the middle of the 1980s Farm Crisis (note: all politicians were affected because every state has lots of farmers); and
2. Congress scrambled to increase the Subchapter V debt limit from $2,750,000 to $7,500,000 within a mere one month and one week after Subchapter V’s effective date—because everyone expected the pandemic to cause economic chaos and small business failures.

But political support for the $7,500,000 debt limit has yet to translate into official action to remedy the current situation.  Hopefully, the newly-proposed amendment will provide an effective opportunity to do just that.

Passive-Aggressive Opposition?

Who knows what’s actually been going on within the bowels of Congress, around Subchapter V eligibility. 

But here’s how it appears: the reflex-opposed interests have, without openly opposing anything, eliminated the availability of Subchapter V for many small businesses by manipulating the $7,500,000 debt limit—in two ways:

• by preventing any inflation-adjustment to that limit; and
• by insisting upon sunset provisions for that limit.

I’ll try to explain.

–No Inflation-Adjustment

Consider this:

• the initial increase of the $2,750,000 debt limit for Subchapter V to $7,500,000 occurred on March 27, 2020;
• since then, the $2,750,000 limit has increased by inflation adjustments to $3,424,000—a 24.5% increase; but
• Congress has not allowed an inflation adjustment to the $7,500,000 limit; and
• had the $7,500,000 limit increased over that same period by the same 24.5%, the current limit would be $9,337,000.

Yet, the newly-proposed amendment is still presenting the same $7,500,000 limit—not the inflation-adjusted $9,337,000 amount. 

That’s a significant (and intentional?) exclusion of many small businesses from Subchapter V.

–Sunset Provision

The proposed amendment to S.2296 carries another two-years sunset provision.

Here’s my memory of some history with sunset provisions for the $7,500,000 debt limit:

• at the first sunset, Congress waited until the last minute and then ran a legislative fire drill to get the $7,500,000 limit extended before the sun set on it;
• at the second sunset, Congress let the sun set on the $7,500,000 limit and then leisurely went about reinstating that limit with retroactive effect; but
• at the third sunset (in April of 2024), Congress let the sun set on the $7,500,000 limit, and the sun remains dark to this day (well beyond a year later)—with no assurance that the $7,500,000 limit will be reinstated.

–Passive-Aggressive

What the foregoing appears to reveal is this:

• the reflex-opposed interests have effectively eliminated Subchapter V for many small businesses—without ever having to say a single public word in opposition and while pretending their support.

Conclusion

We’ve gotta tip our hats to the effectiveness of such a passive-aggressive strategy, while still decrying its practical effects.   

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